Question

As new ride-sharing companies compete against taxi companies, which had previously enjoyed monopoly power, what will happen to the price and quantity of transportation services?a) Prices will rise and quantity will rise.b) Prices will fall and quantity will rise.c) Prices will rise and quantity will fall.d) Prices will fall and quantity will fall.

Answer 1

b) Prices will fall and quantity will rise.

Step-by-step explanation:

A new entrant that offers competitions to taxi services increases the supply of transport services. Customers that had been used to getting services from one source will now have a choice.

As per the law of supply, an increase in supply leads to a decrease in the price. Monopolies set high prices to maximize profits due to a lack of competition. The two companies will try to win customers by offering competitive prices. An increase in competition represents an increase in quantities supplied, which results in lower prices.